What is 12% rule of EPF? How can I calculate my Provident Fund amount?

New Delhi: If you have a job, you’re already saving for your retirement. The money you put into the Employee Provident Fund (EPF) helps you prepare for life after you stop working. You don’t need to invest a large sum at once. Just a small amount deducted from your monthly salary can grow into substantial savings over your career. This also comes with tax benefits. Plus, it serves as a financial safety net during unexpected situations.

EPFO Eligibility

To be eligible for the Employees’ Provident Fund, you must fulfill specific criteria. Firstly, you need to be employed in a company that has more than 20 employees. Secondly, your age should be between 18 and 54 years old. Lastly, your basic monthly salary must be Rs. 15,000 or more. Meeting these conditions ensures that you can participate in the EPF scheme, which helps you save for your retirement through regular contributions from your salary.

What is the 12% rule of EPF?

In the Employees’ Provident Fund scheme, both employees and employers contribute towards the employee’s basic salary. Male employees typically contribute 10 per cent or 12 per cent of their basic salary to their EPF account, while female employees begin with an 8 per cent contribution for the first three years of employment, which then increases to 10 per cent or 12 per cent, depending on the employer’s policy. Employers match the employee’s contribution by contributing an equal amount, either 10 per cent or 12 per cent of the employee’s basic salary, into the EPF. However, for companies with fewer than 20 employees or those facing financial difficulties, the contribution rate remains fixed at 10 per cent as per EPFO guidelines.

How to calculate EPF interest

EPFO offers an interest rate of 8.25 per cent to employees.

If an employee’s basic salary plus dearness allowance is Rs 14,000,
The employee puts in 12 per cent of Rs 14,000, which is Rs 1,680.
The employer contributes 3.67 per cent, which is Rs 514.
The employer also contributes 8.33 per cent to the Employee Pension Scheme (EPS), which is Rs 1,166.
So, together, both the employer and employee put Rs 2,194 into the EPF account.

Now, with an interest rate of 8.25 per cent per year, the monthly interest earned is 0.679 per cent.

For example, if the employee starts in April 2024:

In April, Rs 2,194 is contributed to the EPF account, but no interest is added for that month.
By May 2024, the EPF account totals Rs 4,388 (Rs 2,194 + Rs 2,194), and it earns an interest of Rs 29.79 (which is 0.679 per cent of Rs 4,388).

These calculations continue until the employee reaches retirement age (usually 60 years old).

 In the Employees’ Provident Fund scheme, both employees and employers contribute towards the employee’s basic salary. Currently, EPFO offers an interest rate of 8.25 per cent to employees.  Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today